Dr Hermann Simons Presentation

OverviewGlobalization: The great enigmaTime bomb populationCapital markets:World democracy and world tyrannyChange: Where are we heading?Germanys stars

German SchizophreniaExport record in 2004Worst internal situation since decadesDepressed moodLack of leadershipStrengths of German companies

Exports in 2004 (billion US-$). . .

Globalization Has Only Just Begun623437985World export per capita

6234379852,000(prognosis)Globalization Has Only Just BegunWorld export per capita

Unlimited Opportunities for Growth1.2 billion people without clean drinking water2 billion people without electricity49% of the world population have never made a phone call61% of the world population have never taken a photoToday:40 million cars per year2020:80 million cars per year

Globalization of ManagementExample: Board of Adidas7

Globalization of ManagementExample: Board of Fresenius Medical Care5

Globalization of ManagementExample: Board of Nestl10

World-Class Talent"A recent study says global corporations are at war for 21st century executive talent. Attracting world-class is getting more and more difficult. Firms big and small need to provide talented people with a compelling reason to join and stay with a company."The Wall Street Journal

Markets of the Future?TransatlanticaChinaSouth-East AsiaJapanIndiaHow do Korea and Germany stand relative to these markets?

Report Card on GlobalizationGermanyKoreaMental globalization+Global presence+Worldwide war for talent-International management+Global market leaders++Education- +Anti-globalization+

Lesson 1Globalization has only just begun. It brings enormous opportunities for growth but also great risks. Mental globalization, the battle for the best talents and the best know-how are huge challenges.

Timebomb PopulationIndustrial countriesLife expectancy goes up radicallyPension age goes up from 8 (1957) to 27 years (2030)Declining birthratePyramid

Timebomb PopulationDeveloping countriesHigh birthrate More children surviveExplosionAIDS?Pyramid

Timebomb PopulationGesamtschauIndustrial countriesDeveloping countries1 billion richold people2 billion young peopleBreeding ground foraffluenceorWorld War III?

The Population Time BombBirth rates:Germany 8.45USA 14.13Korea12.3Japan9.56Population below 15:Germany15.0%USA 21.0%Korea20.9%Japan14.3%India32.7%Iraq40.2%(births per 1,000/population)

Population Development in Germanymalefemale

The Gap in GermanyThere is a gap of 10 million people under 30!

This explains nearly everything.

"Demography is Destiny"

The Only Solution1 million immigrants per year - well selected

Two conditions:-willingness to integrate-value education

The current immigration policy is exactly the opposite.

Consequences/ImplicationsCollapse of social insurance systemInnovations drive of society and companiesIntegration of older employees

How does Korea cope with the demographic challenge?

Lesson 2Population dynamics determine our future more than anything else. This is not a prognosis but reality. The current systems cannot cope with the aging population. Germany needs 1 million immigrants every year. German society is going to change completely. Companies face very major challenges with regard to getting enough young people and integrating immigrants and older employees.

Low Profitability of German CompaniesReturn on sales after tax: 0.0% in 2003. Germany and France no. 20 of 20 industrialized countries

Return on sales public coporations 2003:UK:5.7%France:2.4%Germany:1.5%

Market CapitalizationMetro14,2Wal-Mart159,4Posco Steel12.3Bayer19,4Merck 57,8Hyundai0.9Deutsche Bank67,7Citigroup187,6Korea First Bank0.6 Siemens61,9General Electric296,2Samsung Electronics55.3Quelle: Deutsche BrseQuelle: NYSE.comQuelle: Company Websites

Value Extraction??Value Delivery(Welchen Wert liefernwir den Kunden?)Value Delivery (What value do we deliver to the customer?)Value Extraction(Wie holen wir uns den Gegenwert?)Value Extraction(How do we get the counter-value?) + +- / o / +BRAND

Lesson 3The capital market is both a world democracy and a world dictatorship whether you like it or not. Each country and each company must adjust itself to the rules applicable, which are above all profit and growth. Whoever believes they can elude these rules of the market will end up an outsider and destitute.

Willingness to change in Germany95% of 46 to 59 year olds are AGAINST an increase in the retirement age.75% of 30 to 45 year olds OBJECT to reductions of their retirement funds.81% do not want to FINANCE THEIR OWN sick pay. Source: N-Indikator for the analysis of political consequences, 2003

A Brutal Diagnosis20 million addicts to a drug called state.Terror of minorities, e.g. unionsEducation as a major weakness of Germany and a strength of Korea?

Well know weve become Germany when two things are true: Dad can never lose a job and also can never find one.Holman W. Jenkins Jr.WSJE, February 26, 2004

Effects on ProductivityGrowth of productivity*AustraliaCanadaNew ZealandGermanyItalyNorwaySwedenFinlandDenmarkUSABelgiumAustriaNetherlandsJapanSpainFranceJob market protection indicator**Correlation -0.69Ireland

Development of EmploymentUSAUSAGermany

ObservationsDiscussion with a professor of theology.

Secondary school director in Duisburg: 80% of my teachers are against the performance principle.

Change vs. Status Quo ManagersDistribution of Change Managers and Status Quo Managers 16 %" ... visionaries and discoveres who are full of ideas and almost obsessed with their search for the new and innovative."84 %" ..., who all have one thing in common: They hate change more than anything." Source: Rolf Berth, Triebfedern des Erfolges, Max-Planck-Gesellschaft, Spiegel 6/1993, S. 40 - 42

ContradictionFor me one of the strangest aspects in Germany is the contradiction between societal culture and corporate cultures.

Germany has a very severe growth problem. Many German companies, however, do not have this growth problem they simply grow abroad.

Is Korea better at accepting and managing change than Germany?

Lesson 4To save Germany, much more radical change is necessary. Most Germans are in favor of more radical change but, due to rigid structures, such change has yet to take place. Germanys management elite has failed to communicate the necessity of change. It is doubtful that Germany will be able to pull off the necessary change.

Hidden Champions The German leadersThe hidden champions: 1000 world market leadersFocusGlobalizationClear competitive advantagesNo alliances

Hidden ChampionsHauniRittalBaaderBritaTetraWrthEnerconBelfor

The Hidden Champion - Strategy- Specialization in Product and Know-how -Global Selling and Marketing

Champions of Growth

Founding year of subsidiariesNumber of subsidiariesGlobalization: KrcherHigh Pressure Water Cleaners

Tabelle1

RUS38

KOR37

IRL36

TR35

Dubai34

MAL33

TAIW32

VRC31

I (CIP)30

MEX29

SGP28

I (CET)27

PL26

CS25

H24

HK23

GR22

NZ21

USA (AKM)20

JPN19

E18

CDN17

AUS16

ZA15

DK14

SF13

N12

NL11

USA10

S9

B8

UK7

BRA6

I5

CH4

A3

KrcherF2

Winnenden1

19351962196419661974197519781982198319841985198719881989199119921993199419951996199719981999200020032004

Tabelle2

Tabelle3

Wuerth Group: 50 Years of Growth (1954-2004)

Enercon Wind TurbinesA case of extreme innovationFounded in 19847,000 employees today, $1.6 billion revenueNo. 2 in world after General ElectricMore than 40% of all patents worldwide 20% higher priceSuperb service (more than 97% availability)

Lesson 5The biggest strength of Germanys economy is the least known: the hidden champions! They prove how top performance and high customer value beat the competition worldwide. These companies often grow very strongly. Many German companies have the potential to become a hidden champion. However, to an increasing degree they achieve this goal outside Germany. On distant shores Germanys stars reach a new prime.

SummaryGlobalization has only just begun.The population time bomb keeps ticking. Suggestion: 1 million young, qualified immigrant per yearThe capital market is the word democracy/ dictatorship. Germany still has to learn this.Germany is sick, is a cure in sight?German companies are world stars, but less and less at home.

Simon, Kucher & PartnersWorldwide Strategy & Marketing ConsultantsClear Focus: Revenue-Driven Profit GrowthCore Competence: Pricing / Pricing-Processes"Simon-Kucher is world leader in giving advice to companies on how to price their products" Business Week, 2004

Global PresenceGermany,BonnAustria,ViennaSwitzerland, ZurichEngland, LondonFrance,ParisUSA, BostonJapan, TokyoItaly,MilanSpain,MadridCountryPlanned OfficesUSA, Palo AltoGermany,MunichPoland,WarsawChina,ShanghaiGermany,Frankfurt

Continuous GrowthEmployeesRevenue

References (Selection)

Hermann SimonHermann Simon is founder and chairman of Simon, Kucher & Partners Strategy & Marketing Consultants, Bonn, Boston, London, Munich, Paris, Tokyo, Vienna, Warsaw and Zurich. Simon is a leading strategy, marketing and pricing expert. He consults to corporations worldwide.

In his first life Simon was Professor for Management Science and Marketing at the Universities of Mainz (1989-95) and Bielefeld (as of 1979). He worked as a Visiting Professor at numerous institutions: Harvard Business School, Stanford University, London Business School, INSEAD, Keio University Tokyo and the Massachusetts Institute of Technology. From 1985 to 1988 he was Director of USW-The German Management Institute in Cologne.

Simons more than 30 books include Profit Renaissance (forthcoming with Harvard Business School Press 2005, the world bestseller Hidden Champions (published in 13 languages), Power Pricing (also in 13 languages). From 1984 to 1986 he was President of the European Marketing Academy.

He has been on the editorial boards of numerous scientific journals both in the USA and in Europe. As a consultant he has worked for firms around the globe, such as Aventis, Bayer, Bertelsmann, BMW, Ciba, Coca-Cola, Compaq, DaimlerChrysler, Deutsche Bank, Dow, Hewlett Packard, General Motors, Kodak, Lufthansa, Novartis, Panasonic, Siemens, TRW, UBS. He is a director in several corporations and serves on the board of trustees of several foundations.

A native of Germany he studied economics and business administration at the universities of Bonn and Cologne. He received his diploma (1973) and his doctorate (1976) from the University of Bonn.

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Dr Hermann Simons Presentation